Question: How do passive index funds like VTI, VOO, SPY, ETC., work?
u/Interesting_Week_917 ·
Reddit — r/stocks
· August 04, 2026 at 21:12
· ⬆ 20 pts
· 💬 7 comments
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Setup. I understand the concept that there’s a bundle of stocks that any given ETF is comprised of, and the amount of “room” any one given stock takes up is determined by its market cap. The higher the market cap, the more shares an ETF will buy of a given stock.
Example. A 5 trillion dollar company will have more of its shares purchased by VT than a 100 billion dollar company.
The problem. Say the 100 billion dollar company moons to become the next 5 trillion dollar company, where along the way does the fund readjust its holdings away from the one and into the other? In other words, if a fund holds 0.2% of the 100 billion dollar company, but then in 2 days it becomes a 1 trillion dollar company, what happens? Does the ETF buy more shares? Or does its shares that it currently holds just become valuable enough that it adjusts to the new market rate in comparison to other holdings?
I’m sorry if this is stupid but I’m genuinely confused.